Picking a home loan package

Homeowners should choose home loan packages based on their needs instead of trying to take advantage of short-term interest rate movements.
Homeowners should choose home loan packages based on their needs instead of trying to take advantage of short-term interest rate movements.PHOTO: ST FILE

Homeowners should choose home loan packages based on their needs instead of trying to take advantage of short-term interest rate movements, said Ms Tok Geok Peng, DBS Bank's executive director of secured lending.

"If you prefer stability in your home loan repayment, a fixed rate package lets you enjoy a flat interest rate for a period of time and at the same time protects you from any upward interest rate movement," she added.

DBS offers a three-year fixed rate at 1.88 per cent a year and a five-year fixed rate at 1.99 per cent.

Those wanting lower interest rates can consider home loan rates pegged to fixed deposit rates. Such rates can change over time but offer greater stability than market benchmark rates.

Ms Lee Mei Ling, OCBC Bank's head of home loans product management, said the market expects interest rates to continue to move up gradually. Therefore, many customers have opted for a more stable option.

In recent months, the most popular choice among OCBC customers has been its 36-month S$ Fixed Deposit Mortgage Rate loan package, introduced in October last year.

 

Ms Grace Cheng, co-founder of Get.com, said that such fixed deposit pegged rates packages are also offered by DBS, UOB and Standard Chartered Bank.

Ms Lee said: "OCBC has a popular alternative refinancing option that is pegged to the 36-month Singapore dollar fixed deposit rate (which is at 0.65 per cent currently). This benchmark offers transparency, increased stability and flexibility."

She added that should the 36-month fixed deposit rate increase, customers will be able to switch to another pricing package at no cost.

"Many customers find the additional safety net of one free conversion (to re-price to another package) a huge plus," Ms Lee said.

In recent months, many OCBC customers have also opted for the one-month Sibor package. This might change now as Sibor rates have risen since the US Federal interest rate hike last Wednesday.

Those opting for floating rates should bear in mind that we are in a low interest rate environment and monthly instalment amounts will increase when interest rates rise.

If you find it difficult to choose between fixed and floating rate packages, DBS offers the unique DBS Managed Mortgage solution. It allows homeowners to allocate their loan between a fixed rate package and a floating rate package, which helps to reduce the impact of rising rates. But if interest rates decline, they will enjoy a smaller reduction in interest savings.

"This way, homeowners can better manage their mortgage loan repayment and still protect themselves against upward interest rate movement," said Ms Tok.

Mr Vinod Nair, chief executive of MoneySmart.sg, recommends taking a conservative stance during this period of time by opting for a "safer" interest rate package. This means considering only fixed or fixed deposit-linked rates.

"Between the two, I believe a fixed deposit-linked package is actually the safer option, as you wouldn't want to be stuck with a Sibor rate package after the fixed rates expire," he said.

Lorna Tan

A version of this article appeared in the print edition of The Sunday Times on December 18, 2016, with the headline 'Picking a home loan package'. Print Edition | Subscribe